Uniswap is currently the most popular and largest decentralized exchange in the field of decentralized finance (DeFi). The entire DeFi field is currently on a triumphant advance. Within a few months, various cryptocurrencies that DeFi has made a name for have attracted a lot of attention. More and more money is flowing into decentralized applications, including stablecoins, lending, yield farming and, above all, decentralized exchanges.
Currently, over 200 million USD are traded daily on the largest decentralized exchange, Uniswap. The daily trading volume now overshadows many centralized exchanges. In addition, every trade takes place on the Ethereum blockchain and can therefore not be manipulated. Uniswap takes decentralized trading from wallet to wallet to the next level.
This guide won’t only explain what Uniswap is and how it works but also how you can use it to your best advantage yourself. For this, we show you the benefits of Uniswap, step-by-step instructions on how to trade, and the Uniswap trading fees. It’s going to be an interesting read. Grab your coffee and enjoy!
What is Uniswap?
Just under a year ago, decentralized exchanges such as Uniswap received little attention, and the trading volume was negligible. These times have changed because thanks to the ease of use, more efficient trading and the current DeFi hype, decentralized exchanges are experiencing a real boom. The trading volumes reach new highs every day and sometimes even exceed the trading of Exchanges Coinbase or Kraken.
Therefore, Uniswap is an Ethereum-based automated liquidity protocol. Uniswap, a decentralized platform, consists of smart contracts that manage the liquidity reserves of each trading pair. Smart contracts, i.e., liquidity pools, contain an equal value of both cryptocurrencies belonging to a trading pair. In this way, you can exchange your cryptocurrencies on Uniswap with sufficient liquidity.
Uniswap was founded in 2018 by Hayden Adams but only gained massive popularity in 2020 in the wake of the DeFi hype. Some investors made a fortune trading tokens available on Uniswap. Uniswap gained further attention by introducing its own governance token UNI. This ensures that the governance is placed in the hands of the users. When the UNI token was launched, all previous Uniswap users received an airdrop in the form of 400 UNI. These are currently worth 1,000 euros. With Uniswap, you can get a share of commissions paid in trading transactions by adding liquidity to transaction pairs, as well as exchanging cryptocurrencies.
How Uniswap Works
To use Uniswap, you have to connect your Ethereum wallet to the platform. You can use different compatible Ethereum wallets – Metamask is recommended. After successfully connecting it, you have access to Uniswap and can now exchange Ethereum for other tokens. You automatically pay the price at the time of the trade. Swapping tokens on Uniswap is very easy:
First, you have to select the token you want to purchase on Uniswap. Then all you have to do is enter the number of tokens you want before you start trading. Your wallet will request permission to conduct this transaction.
Make sure that you always have enough Ethereum in your wallet for the transaction fees. After confirmation and a short waiting period, the swap is successfully carried out, and the tokens are in your wallet. The selling process is the same.
6 Benefits of Uniswap
Your keys, your coins
With Uniswap you can trade directly from your wallet without transferring your tokens or coins to a wallet of a service provider. This means that you always have 100% control over your cryptocurrencies, and you never have to worry about a possible exchange hack or exit scam again.
No registration, no verification
You do not need to register in advance with Uniswap. You connect to Metamask, for example, within seconds, and you can use the service without restrictions. This also means that you do not have to go through any verification. No Know-Your-Customer (KYC) is required here.
Low trading fees
Trading fees on Uniswap are not only transparent but also relatively low. Overall, the platform takes 0.30% per trade. Part of it goes to the liquidity providers, who make decentralized trading possible in the first place. More on that later.
Access through the quick listing
On Uniswap, anyone can provide a token for trading without registration or verification. This does not cost any fees, but it does require liquidity for trading, which the project should provide. Smaller projects, in particular, use this to be directly tradable. It allows you to get involved in promising projects at an early stage and participate in the strong price fluctuations.
There is hardly any other decentralized exchange (DEX) that is as easy to use as Uniswap. You have managed to make decentralized trading accessible in just a few clicks. Trading directly from your wallet has never been so easy.
There is no need to match the trading pool mining model, and the price is given by the model, which can accelerate the speed of the transaction and reduce the market-making threshold. Liquidity providers have the opportunity to share commission income.
How to Use Uniswap Exchange
You have several ways to use Uniswap. Either with an application that integrates the protocol (Bridge Wallet, Money) or directly from your browser with a wallet type Metamask, Coinbase Wallet. (integration as a plug-in in your browser).
- Go to the protocol application: https://app.uniswap.org/#/swap
- Authorize the app to connect to your wallet (you will need $ ETH to pay the gas costs).
- In the top row, choose the token you want to exchange, and in the bottom row, the new token you want to get.
- Click on Swap. A pop-up with the amount of gas will appear, validating (or not) your transaction definitively. Remember to always check the price of gas before validating the transaction!
You can also list a cryptocurrency that you cannot find. However, be careful not to rely only on the name of the cryptocurrency but also on the contract address that you can find on etherscan. Anyone can add a token, so it’s very easy to trick users’ vigilance!
Trading on Uniswap
Uniswap uses a “constant product” automatic market maker mechanism to create liquidity. A major feature of this mechanism is that it reflects prices based on transaction conditions. When someone exchanges token A for token B (that is, buys B), the price of B will rise, and vice versa (sell B), the price of B will fall, which is in line with the general transaction price law.
Changes in the fund pool. The size of the fund pool of the token determines the depth of the transaction. If the size of the fund pool is small, the transaction depth is not enough, and it is difficult to place a large order. Therefore, the dealer will inevitably increase the size of the fund pool significantly before raising the price. So, if you find that a certain token fund pool has suddenly increased significantly, it is likely to mean that the coin will start to rise. Otherwise, dealer pulls out from the token fund pool.
Uniswap Trading Fees
The commission rate you will pay for trading on Uniswap is 0.30% fixed. You also need to pay a transfer fee (gas) for transactions.
The commission rates paid for trading transactions are distributed to those who provide liquidity to the transaction pair in proportion to their shares in the pool.
For example, if you sell 1000 USDT and buy ETH, the commission rate you will pay will be 3 USDT from 1000/100 × 0.30. Also, if you want to sell a token, you need to allow the smart contract to spend the token in your wallet with an “approve” transaction.
This process is done only once for each token, and you only have to pay the transfer fee for the transaction. Therefore, instant gas charges are also an important issue.
In the Ethereum network, sometimes you may have to pay a high transfer fee due to the density. If instant gas charges are too high, you can choose to trade at another time.
You can check instant gas charges on ETH Gas Station. In addition, MetaMask also shows a gas fee in accordance with the current density. In such cases, you can use Binance or Binance TR to trade with the lowest commission rates in the market.
As you have now seen, decentralized exchanges are no longer a dream thanks to Uniswap but offer simple and secure access to several cryptocurrencies. Due to the decentralized and automated process, DEXes (decentralized exchanges) create real added value and are more efficient than their centralized competitors. However, the recent high demand also has its price because the Ethereum blockchain is (and will remain) the bottleneck for the real mass market. While the trading fees of the Uniswap Exchange are affordable, it is the Ethereum network that keeps generating high costs.
On the other hand, Uniswap offers several cryptocurrencies and easy access through Web3 wallets such as Metamask. The decisive advantage, however, is that the coins are in your possession all the time.
Interest in Uniswap and AMM technology is already very high and could multiply in the coming years. The advantages far outweigh the disadvantages, in my opinion, and more and more new crypto projects will start on the Uniswap platform.